Bills target state retirement system costs

CONCORD — Most bills filed this year seeking to improve the state retirement system already have died a quick death in the House.

But two filed by State Rep. Neal Kurk, R-Weare, are still alive, and he says they could yield healthy long-term dividends for state coffers if they are passed into law.

Kurk's House Bill 1530 would ensure base pay is used to calculate retirement benefits, preventing workers from "padding" salaries.

He said there have been many instances over the years in which state, municipal, county and school employees padded their base salaries by, as they were nearing retirement, using pay from special details, overtime, and compensation for unused vacation, sick or personal time they were allotted, increasing the amount they earned. The full amount then would be used to calculate pensions, potentially greatly increasing retirement payments for life.

Under Kurk's proposed bill, retirement benefits would be calculated only on a public employee's highest level of base salary at the time they retired, Kurk said.

Besides what he believes could amount to significant long-term savings for the state system, Kurk said his bill would also restore the public's faith that public servants are not being overcompensated.

"We set up the pension system so people could have enough to live on after retirement," he said, "not to let someone have the same amount of pay when they retired."

Under the current system, he said, some public employees are walking away with 80, 90 or even 110 percent of their base salaries when they began collecting monthly pension benefits.

"That is not good public policy," said Kurk, a member of the House Finance Committee.

He also filed HB1682, which would require the state retirement system to use a 50-year period for averaging retirement system earnings and assets in preparing its biennial valuation. That valuation is used to determine annual contribution rates required of employers, including cities and towns.

Currently, Kurk said, the system requires actuarial firms to review the rates every five years to determine if the contributions being made by cities, towns, counties, school districts and state employers are sufficient to support the benefits.

By extending the actuarial period well beyond the five-year cycle, the system would have a more stable rate structure, Kurk said.

Cities and towns that currently are looking at sharp rate increases beginning in July 2011 and 2012 would not end up being forced to make such high payments, he said.

Whether in prosperous or lean economic times, he said, a 50-year valuation window would not decrease or increase contribution rates that much. It would also allow the state to avoid severe shortages in retirement system funds in the future.

The overall health of the state retirement system remains a key issue for lawmakers this year.

According to the retirement system's annual financial report, which is posted online at nhrs.org, the system's funded ratio of the pension plan stood at 58.3 percent in 2009, down from 67.8 percent in 2008. An independent auditor's report filed by Boston-based KPMG LLP in December showed the system's net assets decreased by $1.135 million from the prior year, and net investment income declined by $995.2 million in 2009.

Ken Alberts of Gabriel, Roeder, Smith & Company, the retirement system's actuarial firm, told the system's board of directors in November that employer rates would have to be increased by 11.4 to 31.1 percent in fiscal years 2012 and 2013 to make up an 18 percent decline in investment revenue.

More than 51,000 state employees, firefighters, police officers and teachers are retirement system members. About 24,000 retirees receive monthly pension benefits.

Two other pieces of legislation that deal with the retirement system are being retained by the House Executive Departments and Administration Committee.

One, HB1681, sponsored by Rep. Charles Weed, D-Keene, would allow education support personnel to participate in the system. It would also force school districts to pay for state retirement benefits for those employees.

Several House bills pertaining to the retirement system already have been killed.

For example, Rep. Ken Hawkins, R-Bedford, sponsored HB401, which would have reduced the system's board of directors from 14 to eight members, all appointed by the governor and Executive Council.

Hawkins said the House Executive Departments and Administration Committee killed his bill last year, but he brought it back again this year, when it was killed again.

He said the current board is too political because eight of its members represent Group I and Group II employees and are appointed by state employee unions that represent firefighters, police officers and teachers. He said the possibility exists that every member on the board also could be a retirement system member.

He said he believes the state would be better served if the governor and Executive Council were able to appoint people with strong investment and financial expertise.

Although his bill has been killed twice, he said he is glad he has been able to bring it back.

"At least we're trying to get people to understand what's going on," he said.

Other bills that met a quick death in the House included HB617, sponsored by Rep. Jill Hammond, D-Peterborough, which would have let small businesses and nonprofit groups join the retirement system. It was killed in 2009 and again this year.

HB673, sponsored by Rep. Candace Bouchard, D-Concord, would have let cities, towns and counties withdraw from the state retirement system or withdraw a portion of their public employees, such as new hires. That bill was also killed in the House.

Barbara Reid, who serves as the government finance adviser for the New Hampshire Municipal Association, said her group testified in favor of this bill in 2009 because it would give members flexibility to decide what level of benefits they wanted to offer employees.

She said it would only affect new hires, not any public employee who was already in the system and vested.